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Introduction to Modern Economic Growth skilled workers, generate ideas that are then used in other parts of the country or even in the world economy, there may exist significant global human capital externalities Such global external effects would not be captured by the currently available empirical strategies Whether such global human capital externalities are important is an interesting area for future research 10.8 Nelson-Phelps Model of Human Capital The discussion in this chapter so far has focused on the productivity-enhancing role of human capital This is arguably the most important role of human capital, emphasized by Becker and Mincer’s seminal analyses However, an alternative perspective on human capital is provided by Richard Nelson and Edmund Phelps in their short and influential paper, Nelson and Phelps (1966), and also by Ted Schultz (1965) According to this perspective, the major role of human capital is not to increase productivity in existing tasks, but to enable workers to cope with change, disruptions and especially new technologies The Nelson-Phelps view of human capital has played an important role in a variety of different literatures and features in a number of growth models Here we will provide a simple presentation of the main ideas along the lines of Nelson and Phelps’ original model and a discussion of how this new dimension of human capital will change our views of its role in economic growth and development This model will also act as a steppingstone towards our study of technology adoption later in the book Consider the following continuous time model to illustrate the basic ideas Suppose that output in the economy in question is given by (10.43) Y (t) = A (t) L, where L is the constant labor force, supplying its labor inelastically, and A (t) is the technology level of the economy There is no capital (and thus no capital accumulation decision) and also no labor supply margin The only variable that changes over time is technology A (t) Suppose that the world technological frontier is given by AF (t) This could correspond to the technology in some other country or perhaps to the technological know-how of scientists that has not yet been applied to production processes We 495